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FLORIDA CHIEF FINANCIAL OFFICER TOM GALLAGHER'S WEEKLY NEWSLETTER

Volume 2, Number 21, May 23, 2005    

Hurricanes pose a very real risk to Floridians, but with adequate and early preparation, you can effectively safeguard your family and property from devastating losses. 

It is critical for families to take the time to prepare before storms threaten and this year dollars can be saved by preparing early.

The Legislature has instituted a hurricane preparedness sales tax holiday for certain hurricane supplies. This is the first year for the tax break which provides that no sales tax, state or local, will be collected on hurricane items from 12:01 a.m. June 1 to midnight June 12. The governor signed this bill into law today in a ceremony in Pensacola.

Items from inexpensive candles, flashlights, batteries, coolers, first aid kits, radios, tarps, and portable generators are among qualifying merchandise, but plywood is not.

Families and business who were prepared prior to the 2004 disasters recovered better physically, emotionally and financially than those who were not prepared for the storms.

Over the last nine months, my office has been helping Florida residents recover from the fury of Mother Nature. In order to learn lessons from last year’s storms and share them with all Floridians, I traveled the state and met with more than 3,000 Floridians during town hall meetings in Florida’s hardest-hit areas.

My office has fielded more than 350,000 consumer assistance requests based on last year’s storms. By combining the invaluable testimony collected with my experiences in dealing with Hurricane Andrew and Hurricanes Charley, Francis, Ivan, and Jeanne, my office is able to make the following hurricane preparedness recommendations to all Floridians: 

  • Review your homeowner’s insurance policy 

  • If you don’t like your policy, shop around for a new one

  • Conduct a home inventory and take stock in what you own and what it is worth 

  • Invest in preventive measures like shutters, reinforced glass or even plywood

  •  Take advantage of mitigation discounts for protecting your home 

  • Start your own disaster savings account to assist your recovery in a worst-case scenario 

These six steps Floridians can take, in addition to disaster planning recommendations by the Red Cross and National Hurricane Center, can help protect from the heartache experienced by so many last year. In addition, the Florida Department of Financial Services offers a wide range of consumer services. I encourage you to visit us at www.MyFloridaCFO.com or call us at 1-800-22-STORM.

I urge that everyone take the necessary precautions, and I wish all Floridians a safe and uneventful 2005 hurricane season.

                     -- Tom Gallagher


GALLAGHER WANTS FLORIDIANS TO BE BETTER PROTECTED THIS HURRICANE SEASON

After an unprecedented hurricane season last year and experts predicting the formation of more than 13 named Atlantic storms this season, Florida’s Chief Financial Officer Tom Gallagher is issuing a warning to consumers: Prepare now.  The official start of hurricane season is June 1 and it ends November 30.

“Last year’s storms were a powerful reminder that homeowners need comprehensive insurance coverage, including flood coverage,” said Gallagher, whose agency worked with tens of thousands of homeowners devastated by losses.  “Review your insurance coverage and make sure it’s adequate so you can protect what you’ve worked so hard to build.”

Nearly 1.7 million insurance claims, representing $21 billion in losses, were filed after four hurricanes inflicted damage in 54 of Florida’s 67 counties last year.

Gallagher also advised Floridians to take steps to strengthen their homes to better protect their families and properties and reduce the level of catastrophic losses.  “It pays to better protect your home from a hurricane,” Gallagher said. He also suggested following these storm preparation tips: 

  • Don’t wait until the last minute to buy coverage.  If you’re covered, carefully review your policy, especially its “declarations” page.  Upgrade your policy limits if they do not cover the current value of your home and its contents.

  • Know whether your policy pays the “replacement cost” or “actual cash value” for a covered loss.  Gallagher said many 2004 storm victims were shocked to learn that “actual cash value” rarely paid enough to replace a destroyed item at today’s prices. 

  • Be sure you know what your deductible is for hurricane losses.  Most policies now have a hurricane deductible of two to five percent of a home’s insured value.  Legislation passed in the 2005 session now allows insurers to offer a 10 percent deductible. Gallagher said many hit by last year’s storms were caught off guard financially and unaware that the deductible was based on the structure’s insured value instead of the estimated hurricane damage costs.

  • Consider your law and ordinance coverage.  Many insurers offer a rider for 25 percent law and ordinance coverage that helps pay for rebuilding an older home to meet modern building codes.  Legislation recently passed now requires insurance companies to offer riders for up to 50 percent law and ordinance coverage.

  • Inventory your household items, including receipts, purchase dates and serial numbers.  Photograph or video-tape your possessions.  Keep copies of this information and your insurance policies in a safe place and keep the originals in a safe deposit box.

  • Write down the name, address and claims-reporting telephone number of your insurance company, which may differ from your agent’s contact information.  Keep this information in a safe place and make sure you have access to it if you are forced to evacuate your home.

  • When a hurricane threatens, take action to protect your property.  Buy the materials you need to secure your property and minimize your losses.  Cover your windows with shutters, siding or plywood.  Move vehicles into a garage or carport when possible. 

  • Remember to withdraw money BEFORE a pending natural disaster.  Normally financial institutions will be closed at least two days after a direct hit and ATMs could be out of commission even longer.

  • Keep materials such as plywood and plastic on hand in case you need to make temporary repairs after a storm.  Repairs made to prevent further damage to property are reimbursable by your insurance company as long as you keep all receipts.

Gallagher also alerted Floridians that legislation recently passed prohibits insurance companies from non-renewing homeowners’ policies until 90 days after hurricane repairs are completed and requires insurers to pay replacement costs up front on a storm claim rather than holding back money until repairs are completed or replacement contents are purchased.  

Gallagher said that homeowners can also look forward to insurance companies offering plain language policies, including clear financial disclosures, and a checklist that will detail what is and what is not covered.

Representatives from the Department of Financial Services (DFS), which Gallagher oversees, will be participating in several Hurricane Preparedness Expos around the state throughout the hurricane season.  Consumer guides, tips and other useful information will be available from the department and other organizations concerned with hurricane safety. 

To find out about a Hurricane Preparedness Expo in your area or to request a free guide on “Insuring Your Home,” or a brochure on “Natural Disasters,” visit www.MyFloridaCFO.com.  Consumers may also call the department’s toll-free Consumer Helpline at 1-800-342-2762, Monday-Friday from 8:00 a.m. to 5:00 p.m. 


GALLAGHER ANNOUNCES ARRESTS IN PONZI SCHEME

ARRESTS MADE IN PALM BEACH GARDENS AND DELRAY BEACH

Florida’s Chief Financial Officer Tom Gallagher today announced the arrests of two insurance agents on first-degree felony charges following a year-long investigation.  Thomas A. Masciarelli and Steven Petrarca were each booked on one count of Aggravated White Collar Crime and one count of Fraudulent Investment Transactions. 

Agents arrested Masciarelli at his home in Palm Beach Gardens and arrested Petrarca at his business in Delray Beach this morning.  They face up to six years in prison if convicted.  The two are charged with operating a Ponzi scheme which scammed an estimated $1.2 million from 31 investors.  They were arrested by investigators from the Department of Financial Services’ Division of Insurance Fraud, which Gallagher oversees.

“It never ceases to amaze me the schemes these crooks come up with,” said Gallagher.  “The bottom line remains, we will not put up with Florida’s investors – particularly our vulnerable elderly investors – being preyed upon.  The investigators who sniffed this case out deserve a lot of credit, this was heads-up work.”

Last July an investigator for the Division of Agent and Agency Services began investigating Masciarelli and Petrarca for suspected failure to return unearned commissions.  This led to the agent becoming suspicious the two were engaged in selling unregistered securities.  Realizing the operation was active, the Division of Insurance Fraud joined the case in an effort to limit the potential for new victims. 

The probe revealed the two were convincing their clients to liquidate annuity investments and invest in a bogus company that would buy and sell distressed real estate and promise returns of up to nine percent.  No real estate was ever purchased, but phony investor statements were sent to the investors, some as late as last week. 

Florida investors who were victims of the scheme came from St. Petersburg, Riviera Beach, Gulfport, Greenacres, Lighthouse Point, Silver Springs, Boca Raton, Jupiter, Sarasota, North Palm Beach, Lake Worth, Gainesville and West Palm Beach. 



JACKSONVILLE INSURANCE AGENT SENTENCED TO THREE YEARS IN PRISON, $366,000 IN RESTITUTION FOR SWINDLING SENIOR CITIZENS

An insurance agent is facing three years in prison and has been ordered to pay more than $366,000 in restitution after he convinced at least six elderly clients to cash in their annuities and reinvest in other insurance products, but instead he used the proceeds for his personal benefit.  Two of the victims, who ranged in age from 68 to 79, have since died.

Thomas Larry Griggs, 48, operated Griggs Financial Services in Jacksonville and was a licensed insurance agent.  On April 28, Fourth Judicial Circuit Court Judge Michael Weatherby handed down the sentence on a first-degree felony charge of schemes to defraud, based on an investigation by the Department of Financial Services, Division of Insurance Fraud.  The restitution was ordered in a separate proceeding on May 5.

“This individual rates among the lowest of the lowest in my book,” said Florida’s Chief Financial Officer Tom Gallagher, who oversees the Department of Financial Services.  “His clients trusted him to look after their best interest, and he betrayed that trust.  We will continue to pursue those who prey on our citizens with all the means at our disposal, and I thank everyone who helped bring this agent to justice.”

Griggs persuaded several elderly victims to surrender their annuities to reinvest into other insurance products sold by Griggs.  But insurance fraud detectives determined that once Griggs received the surrender proceeds from the annuities, he converted the monies to his own personal use.  In total, Griggs defrauded at least six victims out of $366,829.07.  Allianz Life Insurance Company and U.S. Financial Life Insurance Company provided reimbursement to some of the victims, because Griggs was contracted with them to sell their insurance products to the victims.

The fraud division’s investigation was based on referrals from the Jacksonville Sheriff's Office and the department’s Division of Agent and Agency Services, Bureau of Investigations. The department will seek revocation of his insurance agent’s license based on the conviction.

The Department of Financial Services, Division of Insurance Fraud, investigates various forms of fraud in insurance, including health, life, auto, property and workers' compensation insurance.  Anyone with information about this case or another possible fraud scheme should call the department's Fraud Hotline at 1-800-378-0445.  A reward of up to $25,000 may be offered for information leading to an arrest and conviction.


LOTTERY SCAMS RELY ON TRUST OF VICTIM

Crooks convince people to help cash worthless tickets
 
A senior citizen from Naples was recently scammed outside of a grocery store in a fake lottery ticket swindle. Lottery ticket scams are not new - they are a derivative of the classic "pigeon drop," an example of a confidence game.
 
In a confidence game you are persuaded to buy worthless property. The expression "con man" originated from these types of frauds. There are three parties involved in confidence games, the con artist, an accomplice called a shill and the victim who is called a mark or pigeon.
 
The lottery ticket scam works like this:
 
You are approached on the street by someone who claims to have won the lottery. The swindler has the winning lottery ticket in his hand and shows it to you. The con man (or woman) wants you to cash in the ticket because he/she can't for a variety of reasons.
 
In Florida, there have been cases where the swindler said he couldn't cash in the ticket because he didn't have proper identification. In other situations, the swindler indicated he was an illegal alien and that's why he couldn't redeem it.
 
While the two of you are having a conversation the accomplice shows up. The shill apologizes for butting in and explains that he overheard your remarks and wants to help, for a cut of the winnings.
 
The accomplice explains that he has a friend who is a lawyer or accountant who works nearby and who has experience in this area. The shill then suggests that the money can be shared three ways after it has been safeguarded for a month or so.
 
At this point the con man promises you and the accomplice part of the winnings if you help him. You are convinced to put up "good faith" money to assure you won't run off with the winning ticket. If you agree, the crooks wait while you go home or to your bank for the money. The amount fronted is usually hundreds to thousands of dollars. Once you hand over the cash the con man and shill disappear and you are stuck with a worthless lottery ticket.
 
Right now you may be saying to yourself that you would never fall for a scam like this. Unfortunately, scenarios like this play out regularly in every state that runs a lottery. Pigeon drop perpetrators are extremely mobile and travel quickly from city to city and state to state. Along the way they defraud gullible people.
 
In Florida these travelers show up more frequently during our busy tourist season. They make their way from the top of the state around Jacksonville, work their way down to Miami, over to Marco Island/Naples and then up the west coast to large cities like Tampa and St. Petersburg.
 
Victims of confidence schemes rarely complain to the police because they are too embarrassed to report the crime. As long as people are willing to help others during a time of need the scams will continue to surface. To protect yourself from lottery ticket confidence games remember these tips:
 
•Never redeem a lottery ticket for a stranger.
•Don't give out your credit card number over the phone to anyone promising lottery cash prizes or memberships.
•Never respond to a letter, phone call or e-mail from someone who guarantees you will win a prize.
•Don't accept a collect phone call from someone claiming to be a lottery official.
•Don't allow someone to "enter your name" in a foreign lottery or sweepstake.
•Do not give personal information out over the phone unless you are 100 percent certain the information will not be misused.
 
— Mark Mathosian is a financial administrator with the Florida Department of Financial Services, Office of Financial Regulation in Fort Myers. His background is in financial investigations, banking, finance and securities.
 

FLORIDA OFFICE OF INSURANCE REGULATION ISSUES ORDER 

The Florida Office of Insurance Regulation has joined the ever-increasing tide of regulatory bodies seeking answers from American International Group, Inc. (AIG).  AIG operates 43 licensed insurance entities in the State of Florida.    The Office has issued an order to these companies that they must turn over information regarding AIG’s admitted misrepresentations on financial statements.
 
The financial community has been rocked with the results of investigations by the Securities and Exchange Commission (SEC) and other regulatory bodies which have led to subsequent admissions by AIG that certain reinsurance transactions were misrepresented on the company’s financial statements.   AIG’s admissions appear to indicate violations of both federal and state laws.
AIG Press Release – May 1, 2005
 
“American International Group, Inc. ("AIG") announced today that it is nearing completion of the extensive internal review of its books and records conducted in connection with the preparation of its 2004 Annual Report on Form 10-K. The findings of that review, together with the results to date of investigations conducted by outside counsel at the request of AIG's Audit Committee and in consultation with AIG's independent auditors, PricewaterhouseCoopers LLP, have resulted in AIG's decision to restate its financial statements for the years ended December 31, 2003, 2002, 2001 and 2000, the quarters ended March 31, June 30 and September 30, 2004 and 2003 and the quarter ended December 31, 2003. AIG's prior financial statements for those periods and its previously announced unaudited financial results for the year and quarter ended December 31, 2004 should therefore no longer be relied upon…. The restatement will correct errors in prior accounting for improper or inappropriate transactions or entries that appear to have had the purpose of achieving an accounting result that would enhance measures important to the financial community and that may have involved documentation that did not accurately reflect the nature of the arrangements. In certain instances, these transactions or entries may also have involved misrepresentations to members of management, regulators and AIG's independent auditors.”
To comply with the Office’s order, the AIG companies must report on the nature and extent of these misrepresentations and identify and remove any parties culpable in this matter.  The Order also requires AIG to file, by July 1, 2005, true and correct financial statements for the years of 2000 through 2005 for all AIG entities licensed in Florida.
 
Failure to comply with the Order may lead to the suspension of AIG’s licensed companies in Florida and other potential action against these companies and affiliated parties to enforce compliance with the laws of the State of Florida.
 


Consumer Services HelpLine
(800) 342-2762.